The Weekly Briefing - December 21st, 2020

The Weekly Briefing – December 21st, 2020:

In This Week’s Brief:

  • Stimulus Package to Provide Lift to Housing and Labor Markets
  • Coronavirus Trends Intertwined with State Labor Market Dynamics
  • Surge in New Home Construction Contributing to Lumber Pricing Volatility This Year

Stimulus Package to Provide Lift to Housing and Labor Markets

As 2020 comes to a close, much sought after Federal Stimulus is nearing the finish line. Several thousand pages long, the bill text contains relief that will provide lift to rental markets as well as a stagnant labor market.

The $900 billion fiscal aid package will provide a sorely needed shot in the arm for the U.S. recovery, which is encountering growing headwinds (see second story below). The legislation marks the first round of aid in several months and brings total fiscal stimulus during the pandemic to $3.5 trillion, including both extra government spending and tax relief.

With much work to do from an implementation perspective, the stimulus package contains several provisions particularly relevant to commercial real estate and unemployed individuals:

  • Rental Assistance: The bill will establish a $25 billion rental assistance program that will bring a measure of stability to the rental market, although many details of the program are to be determined. Treasury will run the program, working with state and local jurisdictions and, where possible, with existing housing agencies to disperse the funds to tenants. The eligible uses of funds are broad, which is good from both a tenant and landlord perspective, as funds can be used to pay rent, rent arrears, utilities, etc. Prioritization for the rental aid is limited to households that earn less than 50% of area median income or have at least one unemployed adult in the household. Whether state and local jurisdictions are able to expand upon prioritization is unknown at this time.
  • Eviction Moratorium: The CDC’s rental eviction moratorium will be extended to the end of January 2021.
  • Stimulus Checks: A second round of direct payments worth $600 per adult and child will be issued, possibly as soon as next week. As with the first tranche of payments this spring, these will be phased out based on income levels to focus eligibility on those most in need.
  • Emergency Benefits Programs: The bill will extend both the Pandemic Unemployment Assistance and Pandemic Emergency Unemployment Compensation programs, which were set to expire at the end of the month, potentially by 11 weeks. This expansion is crucial as nearly 14 million individuals receive benefits from these two programs compared to approximately 5.7 million individuals receiving state unemployment benefits.
  • State Unemployment Benefits: In addition, the federal government will supplement state unemployment benefits with an extra $300 a week through mid-March, funds that will go further in some states than others (see chart below).
The legislation does not appear to include direct fiscal relief for state and municipal governments, which will leave open questions for states’ financial planning as they work to address 2021 priorities.

Weekly Unemployment Benefits by State1

1. Weekly state benefits figures are based on the midpoint of each state’s minimum and maximum figures.

Coronavirus Trends Intertwined with State Labor Market Dynamics

Some of the states at the center of the coronavirus surge saw job totals retreat slightly in November even though the U.S. registered net job gains of 0.2%. Rising case counts in many states appear to move in step with job losses. Last month, Iowa, North Dakota, and Minnesota each saw new COVID-19 case counts per resident leap to the highest levels yet recorded in each state as payrolls fell by at least 0.5%. Meanwhile, Illinois lost 20,000 jobs, the largest nominal decrease in the country, as virus cases nearly doubled during the first half of November.

In contrast, states with the largest job gains last month tended to have more success in containing the pandemic. Hawaii had some of the fewest new virus cases per resident as payrolls improved 2.6%, the highest figure for any state in November. Texas and California, which reported below-average case counts in November, realized the largest nominal gains with 61,000 and 57,000 new jobs respectively.

With November’s data release, Tennessee and Alaska are the only two states so far that have seen payrolls fully recover to pre-pandemic levels, although Tennessee case counts have spiked in recent weeks, and this will be a state to watch. Kansas, Utah, and Idaho also are close to retracing employment losses, while Massachusetts and Nevada have the most ground to recover with employment down approximately 10.0% in each state since February.

Nonfarm Payroll Recovery Since February: Top & Bottom Performers

Surge in New Home Construction Contributing to Lumber Pricing Volatility This Year

Single-family home construction jumped this year amidst historically low mortgage rates and shifting consumer preferences. Comparing January through November for 2020 to 2019, starts climbed 10.5% YOY, according to the latest Census Bureau figures. The West has seen the strongest acceleration with single-family starts up 13.1% YOY, while starts have ticked up a modest 0.8% YOY in the Northeast.

Many home buyers have turned to new construction in recent months as tight market conditions persist for existing home sales. The months supply of existing homes for sale stands at a record-low 2.5 months at the current pace of sales, and nearly three-quarters of homes sold spend less than a month on the market.

The jump in home construction has occurred through a period of increased lumber consumption and pricing volatility. As home starts accelerated this summer, lumber prices rallied to an all-time high of $955 per thousand board feet in September, as measured by the U.S. Framing Lumber Composite Index. Lumber prices subsequently dropped by nearly half through the end of October but since then have begun accelerating again in an unusual late season climb to $753 per thousand board feet. As shown in the chart below, elevated pricing is well outside of market pricing over the past five years.

Despite the recent runup, lumber pricing pressures could abate somewhat over the next few weeks. The Commerce Department recently cut duties on lumber imports from Canada, which provides roughly one-third of the lumber used in the U.S., from 20% to 9%. And home-builder sentiment has taken a step back from last month’s high partly due to lower future sales expectations. This suggests builders are seeing signs that the new home market is moderating, which could translate into less demand for lumber and potentially decreasing prices.

Single-Family Housing Starts vs. Lumber Price             


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